American Economic Review Vol. 105 No. 3 2015

The Virtues of Hesitation: Optimal Timing in a Non-Stationary World

Urmee Khan¹; Maxwell B. Stinchcombe²

¹ Department of Economics, University of California, Riverside, Sproul 3131, 900 University Avenue, Riverside, CA 92506 (e-mail: ) · ² Department of Economics, University of Texas at Austin, BRB 2.102A, 1 University Station, Austin, TX 78712 (e-mail: )

Abstract

In many economic, political, and social situations, circumstances change at random points in time, reacting is costly, and reactions appropriate to present circumstances may become inappropriate upon future changes, requiring further costly reaction. Waiting is informative if arrival of the next change has non-constant hazard rate. We identify two classes of situations: in the first, delayed reaction is optimal only when the hazard rate of further changes is decreasing; in the second, it is optimal only when the hazard rate of further changes is increasing. These results in semi-Markovian decision theory provide motivations for building delay into decision systems.

DOI

10.1257/aer.20121282

Volume

105

Issue

3

Pages

1147-1176

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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